NBN will now be calling all the shots

Telstra will be challenged for decades by a commanding government-owned rival now the fine print has been agreed on laws that keep the Gillard government’s $35.9 billion broadband plan on schedule.

Telstra
chief executive
David Thodey
has gained another essential reform in his quest for shareholder approval later this year so he can split the company in two and conclude a commercial agreement with the national broadband network.

That takes the company closer to its ultimate goal of sacrificing its fixed-line consumer network in return for guaranteed cash payments from Canberra, while retaining valuable infrastructure including fast-growing mobile networks.

But the progress comes at significant cost because the company will become increasingly vulnerable to the government network operator, NBN Co, which has been handed the power to dictate terms to customers.

Negotiations over the past week have strengthened NBN Co’s powers in ways that help its chief executive,
Mike Quigley
, protect his wholesale monopoly as the project is built over the next decade.

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Some in the Coalition believe Thodey should have rejected the government’s last-minute amendments outright because they give Quigley too much power.

“Telstra has compromised its future for 30 years so David Thodey could bring forward his shareholder vote by three months," says one Coalition adviser.

One amendment, for instance, exempts NBN Co from oversight by the Australian Competition and Consumer Commission if it refuses to connect Telstra or Optus or any other phone company to the broadband network at any location outside 121 points of interconnect that have already been agreed.

If Quigley turns down Thodey’s request for access elsewhere, the Telstra chief executive can’t seek help from the regulator.

Another change gives NBN Co the right to insist that its wholesale customers buy a “bundle" of services rather than pick and choose what they want. This raised red flags for industry executives who worry that a monopoly supplier would tend to ignore its customers rather than respond to what they want.

Telstra had few options when the Communications Minister
Stephen Conroy
released surprise amendments last Wednesday, one day before the broadband reforms were to be voted on in Parliament.

The Coalition wanted Thodey to speak out against the changes in the way that Optus chief executive
Paul O’Sullivan
did on Thursday. But Telstra has more at stake than Optus because it is close to finalising its commercial agreement to transfer assets and customers to NBN Co for about $11 billion.

In the end, however, most industry executives say it is better to have the new laws passed rather than to drag on the debate with another inquiry or delay.

And not all the amendments went Quigley’s way. Telstra and Optus secured changes that allow them to connect big corporate customers directly, rather than having to use NBN Co as a middleman.

Another change won by independent senator
Nick Xenophon
prevents Quigley offering volume discounts to big customers like Telstra, although this is not regarded as a significant curb on NBN Co’s plans.

The overall trend, however, was for the government to seek changes that would bolster rather than curb NBN Co’s authority, shielding it from regulatory challenges by Telstra.